Circuit City plans to replace 3,400 workers in stores

March 29, 2007|By From Tribune news services

RICHMOND, Va. — Circuit City Stores Inc. said Wednesday that it plans to cut costs by laying off about 3,400 retail workers, or 8.5 percent of its in-store staff, and hiring lower-paid employees to replace them. It is also trimming about 80 corporate information-technology jobs.

Circuit City, the nation's second-biggest consumer electronics retailer, behind Best Buy Co. Inc., said the store workers being laid off were earning "well above the market-based salary range for their role." They will be replaced as soon as possible with employees who will be paid at the current market range, the company said.

"We are taking a number of aggressive actions to improve our cost and expense structure, which will better position us for improved and sustainable returns in today's marketplace," said Chief Executive Philip J. Schoonover.

Circuit City employs about 40,000 part-time and full-time store employees, according to spokeswoman Jackie Foreman. Those being laid off will get severance packages and can apply for any open positions after 10 weeks, Foreman said.

The company plans to replace all 3,400 workers "as quickly as store directors are able," she said.

"Firing 3,400 of arguably the most successful sales people in the company could prove terrible for morale," Colin McGranahan, an analyst with Sanford Bernstein & Co., wrote in a research note. "The question remains as to whether Circuit City can rebuild in time for the all-important holiday season."

The sales people being fired weren't given an option of taking a pay cut, a spokesman said. He declined to give the pay rate for fired workers or the expected wages for new hires.

The job cuts will be "a challenge for Circuit City," said Rick Weinhart, an analyst with BMO Capital Markets Corp. in New York. "These are all fresh faces coming in and certainly they're less experienced, so I'm guessing it's not going to be a one- or two-quarter challenge. There's going to be a learning curve."

Circuit City pays about $10 to $11 an hour on average, Weinhart estimated. Entry-level pay probably is close to $8 an hour for inexperienced workers, he said.

In 2003, Circuit City switched employees from commission-based pay to hourly pay, matching an earlier move by Best Buy. That switch had a "dramatically negative impact on sales," and a "significant risk exists" that it might again, McGranahan said.

Circuit City also plans to outsource its information-technology infrastructure operations to International Business Machines Corp., a move that is expected to cut IT expenses by more than 16 percent over the seven-year contract. About 50 of Circuit City's IT workers will move to jobs with IBM and remain on the Circuit City contract. The other 80 corporate positions will be cut.

Shares of Circuit City added 35 cents, to close Wednesday at $19.23, on the New York Stock Exchange.